Tony Bannan, the CEO of Precision Technologies Group, was recently asked to participate in the BBC Radio 4’s consumer affairs programme ‘You & Yours’ to discuss British manufacturing and where British manufacturers currently stand in the global marketplace for industrial products and services.
Jessica Zhang, Manager of the North West of England for the China-Britain Business Council and Dominic Laurie, Business Broadcast Journalist are also involved in the discussion.
Below is a transcription of a section of the interview which brings light into the changing consumer market in China and its implications upon the British manufacturing industry. The programme then delves into the perceived benefits of manufacturing in China and how a host of macro-economic factors are beginning to change the way the global manufactures’ select the host countries for their manufacturing activity.
Interviewer: Jessica Zhang is here, the Regional Manager for the
Northwest of England at the China-Britain Business Council, and Tony Bannan is the Chief Executive of a Rochdale based machinery manufacturer PTG, which is now owned by a Chinese company. Welcome to you both. Jessica, what do the Chinese want from us?
Jessica: I think that’s a very difficult question to answer in the short time, but in a short answer I think we’re looking for value, for technology, for something British. Currently we’ve got a very fast growing consumer group in China. They’re all like middle, upper middle class, and they’re looking for something quite luxury from the UK, and they’re willing to pay probably double, triple the price to get that kind of thing. So it’s really down to the UK companies back here to open their horizon, to open their eyes to see that market. We all know it’s got 1.3 billion population in China. If we all got 1% of that, then it’s much bigger than the whole European market.
Interviewer: So is British manufacturing well placed to respond to the
demand you just described?
Jessica: As Chinese myself, I have to be very, very blunt. I think the British business people compared to even Germans, Spanish, Italian people, we’re very conservative. We look at lots of risks back in China, and we probably move slower than other European competitors here. However, that also represents a huge opportunity for the companies in the UK.
Interviewer: Are we less pushy then? Is that what you’re saying?
Jessica: I would have to say yes. I think culture wise, British businessmen can be a little bit subtle and try to be very cautious, but having said all that, I think we’re doing really well in such areas. For example, we’re very good at the knowledge economy. We’re very good at sending out training services and higher education things. So we do have our speciality.
Interviewer: Tony Bannan, sitting to your left, was smiling a little when you were describing where the British might fall short. Do you acknowledge that description of the way British go about trying to do business abroad?
Tony: Subtle isn’t something I’ve been accused of Bill. Yes, I think there is a culture to a degree at least of being a little bit risk sensitive or risk averse, and that comes from our investment, the mechanisms that most companies are funded by. It’s kind of understandable. I don’t think it applies across the piece, though. Our biggest single market is China. We are an advanced manufacturer of machine tools, and we export probably 50% of everything we make to China today. Interestingly, when we were bought by a Chinese company, it’s a rather curious fact, but some of our customers in China we’re rather nervous about us being acquired by a Chinese company.
Tony: Because, as Jessica was saying, the perception of British quality or European quality is so high that there was a concern that our quality may be affected by having a Chinese owner, and when somebody’s spending two million pounds on a machine tool or a piece of advanced manufacturing technology, they want to buy the best brand. Identity is very, very important in China, and the notion that they might be buying something that’s not such a high quality, it makes people nervous. So we have to reassure them. It’s actually a Chinese parent, but we’re a British company, British technology. It’s made by British engineers and designed by British engineers and so on.
Interviewer: Jessica, can you recognise why that reservation would have
Jessica: Definitely, yes. The Chinese perceive the British company with high quality, with a unique brand value, and that ties in with the British company’s trying to do more and the more business back in China.
Interviewer: Tony Bannan, what difference does it make to your company that you are now Chinese owned? What immediately changed over-night?
Tony: The single biggest change was the return on investment strategy. We were previously owned by a venture capital partnership, and cash was limited for obvious reasons. During that period, when we were bought, we’d been through the worst recession that most of us could remember or any of us could remember. The Chinese brought a longer term view on return. Product development and product strategy is critical to them and to our business. So we are able to now develop products and allow ourselves 2 to 3 to 5 years to pay it back, rather than in a UK PLC it’s typically a year to 18 months, 2 years maximum to pay back a serious development, and most capital goods need longer than that. That has changed, and the business has gone to strength because of that.
Interviewer: To turn the conversation slightly on its head and bringing Dominic Laurie back here, we were talking right at the start of the program, Dominic, about where the UK exports to and clearly the desire to export more to the huge Chinese market. On the other side of the coin, things made in China are regarded by British companies who use that facility as being a cheaper way to do it. Is that still the case?
Dominic: I would say, at the moment, there are certain things moving against that perception. The first is perennially high oil costs, so shipping costs. There was a hope that the cost of fuel and therefore shipping would dip sharply after the financial crisis, and that hasn’t really happened. The cost of a barrel of oil is still over $100. So we haven’t seen that.
Another big factor is unit labour costs, one of the most important statistics in global economics because arguably, the Euro is in crisis. The diversions of labour costs between Germany and Southern Europe, it’s a big, big factor in China as well. There are common pay rises in China over the last 3 or 4 years of 30%, 40%. It’s not unusual.
You put two or three of those together in consecutive years, and suddenly you have things that are much, much more expensive to make. So what you then have to look at Chinese manufacturing for is what we’ve already heard is, if cost is no longer a massive advantage, does Chinese manufactured goods still have advantage of things like the network effect of the supply chain? Expertise, the raw skill that many Chinese manufacturers actually have, which many people say, yes, they are still just as good if not better than anyone else.
Interviewer: Tony, you would echo that?
Tony: Absolutely. Not that long ago, when we first started getting very closely involved, salaries on average for qualified people were about a fifth or a sixth of the UK, and of course in the UK it was slightly lower than Germany, one or two of the other European economies. Now these salaries are approaching half, and it’s not a lot further to go before the competitive edge is actually lost in salaries. The on costs are creeping up as well.
Interviewer: And Jessica, how much is that making a difference to the work you’re doing?
Jessica: We need to change the mentality in the UK. China is no longer a sort of importing market for us. We need to look at China as an exporting market. So China is also trying to up with their own value chain, trying to stay away from the labour intensive economy to more sort of import led economy, and that’s why it creates a huge opportunity for our companies to sell our services or products into China. Another thing to mention very quickly is the sort of HR overhead back in China. If you’re looking for a technical skilled worker, it is not as cheap as before, and not to mention the managerial staff you have to pay as much as you pay in the UK. So we need to really change the view of China as a cheap labour market.
Interviewer: Okay. Thank you both very much for coming in, Jessica Zhang and Tony Bannan.